Charles Krupa, AP
In this Tuesday, March 5, 2013, photo, shoppers push their carts at the Costco store in Nashua, N.H. Costco's fiscal second-quarter net income climbed 39 percent as it pulled in more money from membership fees, sales improved and it recorded a large tax benefit. The wholesale club operator earned $547 million, or $1.24 per share, for the period ended Feb. 17. That compares with $394 million, or 90 cents per share, a year earlier. (AP Photo/Charles Krupa)
If consumers treated trips to the dentist the way they approach outings to warehouse clubs such as Costco and Sam’s Club, they’d all go home with a mouthful of fresh fillings every six months.
“Face it, walking through a huge store can be a hassle. The parking lot is usually packed, the store is full of people pushing huge carts that are difficult to maneuver and checkout lines are sometimes endless,” said Lindsay Sakraida, director of content marketing at DealNews. “It's not an easy trip, so once there, many customers find it smart to make the best of it and buy as much as they need in order to avoid making another trip anytime soon.”
Pricing ploys, store layout, product placement and getting the most out of that annual membership fee are other strategies stores employ to get shoppers to fill a cart brimming with goods in quantities so big they may never be consumed by the expiration dates.
There are savings to be had in a trip to the warehouse store, but experts say shoppers need to be focused and strategic to ensure they consistently capitalize on the deals warehouse stores offer.
Lots of selling
Sales figures underscore the image of shoppers flocking to warehouse stores in search of big volume bargains. Since opening its first location in San Diego in 1976, Costco has 468 stores in the United States and Puerto Rico and an additional 33 stores in Mexico, as of last year. Moreover, according to the website Statista, each store averaged roughly $164 million in sales annually, for an overall net revenue of more than $112 billion in 2014.
A major source of that revenue, unlike conventional grocery stores, is the membership fee. For instance, Sam’s Club charges $45 a year, while a Costco annual membership is either $55 or $110.
“Costco makes most of its money from annual membership fees, which help it maintain its low prices. Those low prices in turn make customers feel like they're getting a good deal upon just walking in the door,” said Sakraida.
That’s not always the case. While buying in bulk appears to save money versus in smaller quantities, experts say warehouses often offset that savings with creative pricing. For instance, low prices on milk can be countered by higher prices on related items such as Nesquick.
“The challenge is that often these bulk or mass retailers price in such a way — ‘hi-lo’, it's often called — that means while you will save in some categories, you will pay higher prices than competitors in other categories such that the overall 'basket price' is in fact stable for the retailer,” said marketing consultant Brynn Winegard.
Some psychological tricks are also at play:
Find the savings
- Cart size. Shoppers may feel the cart should be full to make it worth the trip. Not coincidentally, said Winegard, cart size has tripled since the 1970s. “Bigger baskets filled with things mean more dollars out of your pocket for things you didn’t even necessarily need or want.”
- Store layout. In a nod to the casino industry, warehouse clubs are designed to keep shoppers' attention away from the exits. In addition to the bright lights, no windows, product demos and other distractions, the more expensive electronics are at the front of the store, so "the sales racks are going to look practically free,” said Winegard.
- Treasure hunting: “Since stores like Sam's Club, Costco and BJ's Wholesale Club change out their merchandise often, you never know if what you see on sale today will be there tomorrow,” said Sakraida. “Finding new things is an ongoing treasure hunt and gives shoppers a sense of intrigue when they walk in.”
There some sensible strategies to employ to make the most of the warehouse shopping experience.
First, decide whether a membership is worth it by asking for a trial membership — a low risk way to check out what the store offers and if you have space to store bulk purchases.
“While it doesn't take many purchases to reap the savings benefits, you should make sure you will actually use your membership to avoid wasting $40 or more on fees,” said Regina Conway, consumer expert for Slickdeals.net.
Next, don't assume large quantities mean savings. Take the time to compare unit prices with the similar items at other shopping locations.
“The sizes and quantities of bulk products are not what people are used to, so three pounds of cream cheese looks like a deal worth buying,” said Sakraida. “Never mind that you may never use all of that cream cheese before it goes bad.”
Money coach Carrie Pink suggested comparing items at clubs with comparable goods at dollar stores. In particular, Pink cautioned against buying paper goods, party items and trash bags at warehouse stores — all three of which are often priced lower at dollar outlets and regular supermarkets.
If you’re a regular warehouse shopper, be sure to take advantage of available cash back programs. For instance, Costco’s executive membership allows for up to $750 cash back annually on most purchases (the $110 membership fee is twice the cost of other types of membership, so make certain you’ll shop enough to justify the extra expense.)
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- If you don’t need the shopping cart, don't use it and hand carry you purchase.
- Make a shopping list and stick to it. Additionally, set a timer — say 30-minutes maximum — to alert you when it's time to head for the checkout line.
- Go through the store backwards, said Winegard, starting with modestly priced items you’re actually after. “Don’t browse in the first part of the store," she said. "Ignore the ‘new arrivals’ and beeline for what you came for — savings.”
Jeff Wuorio lives in southern Maine, where he covers personal finance and entrepreneurship. He may be reached at email@example.com and his website is at jeffwuorio.com.